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Quarterly Update High Yield

First State Investments High Yield

Q3 2019 | Co-Portfolio Managers: Matt Philo & Jason Epstein “The fact that an opinion has been widely held is In our opinion, financial markets have remained resilient for the no evidence whatever that it is not utterly absurd.” same, broken-record reason of the past 10-20 years (depending – Bertrand Russell on your view): Global Central Bank actions and statements. In last month’s commentary we highlighted the synchronous, dovish U-turns by the GCB’s: the Fed, the ECB, the BOJ and the PBOC. Thoughts on the Market Our long-held view has been that the massive monetary stimulus The U.S. High Yield market, as represented by the ICE BofAML US of the past decade cannot be reversed. GCBs will not voluntarily High Yield Constrained Index (HUC0) posted a +1.22% total return stop “QE” (encompassing financial asset purchases, negative during Q3’19, on the heels of the particularly strong, +10.16% total interest rates etc.). There will be negative ramifications from this return of 1H’19. monetary insanity, someday. Fortunately, the disciplined The most prominent dynamic in the fixed income markets implementation of our investment process is largely unaffected continued during Q3: the decline in U.S. Treasury rates. by the macro backdrop of an ever expanding global money Exhibit 1, below highlights the strength in the UST 10-Year, supply. “Fortunately” because investment strategies that rely on and the resultant strength in Investment Grade (‘IG’) top-down predictions of the next economic recession, and/or corporates, as represented by the ICE BofAML US Corporate credit crunch have been brutal reminders that “being early is a Index (C0A0). lot like being wrong.” IG corporates pulled ahead of HY corporates in terms of YTD The following chart is a depiction of the stunning decline in total return: +12.9% versus +11.5%, respectively. This +1.4% global Sovereign interest rates based on just five examples: outperformance was driven by a +3.3% stronger price advance, 5 Year Gov't Yield Curves Graph offset by a 1.9% income disadvantage. Obviously, IG corporates are much more rate sensitive than HY corporates, as evidenced by a spread duration of 7.49 versus just 3.08, respectively. Other notable asset class trends during Q3’19 included: ► a Daily 12/31/2018 - 10/11/2019 4.0 meaningful slowdown in the advance of U.S. equities, and ► GT05 Govt - Ask Yield To Convention 1.554 3.5 GTAUD5Y Govt - Ask Yield To Convention 0.702 modest negative total returns (the first “red ink” since Q4’18) by GTFRY5Y Govt - Ask Yield To Convention -0.576 3.0 GTGRD5YR Govt - Ask Yield To Convention 0.663 EM stocks, as represented by the MSCI Emerging Markets Index; GTJPY5Y Govt - Ask Yield To Convention -0.327 EM High Yield corporates, as represented by the ICE BofAML 2.5 High Yield Emerging Markets Corporate Plus Index, and CCC- 2.0 rated High yield corporates, as represented by the ICE 1.5 BofAML CCC and Lower US High Yield Constrained Index. 1.0 0.5 Exhibit 1: Returns of Various Assets 0.0

Asset Class YTD’19 3Q’19 2Q’19 1Q’19 CY 2018 CY 2017 -0.5 S&P 500 20.55% 1.70% 4.30% 13.65% -4.39% 21.82% -1.0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Emerging Market Stocks 6.05% -4.16% 0.69% 9.90% -14.60% 37.43% 10-Year US Treasury 11.13% 3.37% 4.30% 3.07% -0.03% 2.10% Source: FSI & Bloomberg Investment Grade Corp 12.94% 3.07% 4.35% 5.01% -2.25% 6.48% We see no need to belabor the observation that global interest US High Yield Corp Bonds 11.50% 1.22% 2.57% 7.40% -2.27% 7.48% rates have entered unchartered territory. How many “financial Leveraged Loans 6.67% 1.03% 1.63% 3.89% 1.08% 4.25% market experts” predicted the Greek 5-Year Gov’t bond, that Euro High Yield Corps 9.13% 1.30% 2.33% 5.28% -3.63% 6.74% began 2019 at a seemingly suppressed (to us) 3.1%, would EM High Yield Corps 8.96% -0.27% 3.08% 5.98% -2.29% 8.78% enter Q4’19 at 0.67%? We are constantly reminded how US High Yield by Rating quickly humans adjust to new paradigms in all facets of life. BB US High Yield Corps 13.04% 2.05% 3.17% 7.36% -2.57% 7.25% “NIRP” is an exception to that rule, for us. We have not, and B US High Yield Corps 11.05% 1.11% 2.31% 7.35% -1.72% 6.68% may never adjust to negative yielding bonds. I guess we lack CCC US High Yield Corps 5.95% -2.38% 0.58% 7.89% -4.91% 9.26% “the vision.” Source: JP Morgan, ICE BAML 1 Quarterly Update High Yield

High Yield Market Commentary The U.S. High Yield market, as represented by the ICE BofAML $62.90 on Sep-16, only to end the quarter back at $54/bbl. US High Yield Constrained Index (HUC0) posted a +1.22% total We find this interesting territory for the price of WTI crude oil return during Q3’19, on the heels of the particularly strong, as most U.S. shale producers require $50/bbl pricing to survive, +10.16% total return of 1H’19. The inter-quarter volatility of long-term. As a result, it makes some sense that high yield Q2’19 was largely absent in Q3’19. Each month’s return was energy credits experience high price volatility any time oil similar and net-net, +1.56% of total income return was partially breaks the $50/bbl level. We feel we have learned to take offset by very modest -34 bps of price decline. The Energy sector advantage of the sector’s price volatility, within the context of accounts for nearly 15% of the High Yield market’s value and WTI our investment process; the details of which we are happy to crude oil was somewhat volatile during the quarter: declining share with our present, past or prospective clients. which we 13% to a low of $51.09/bbl on Aug-7, rebounding to are happy to share with our present, past or prospective clients.

HighAs of September Yield Composites 30, 2019 - Annualized Fixed Income Composites - Annualized Inception April 30, 2017 Since Inception Q3’19 2Q’19 1Q’19 YTD’19 2018 (Annualized) Broad High Yield 2.07% 3.01% 7.49% 13.02% -1.62% 6.26% ICE BofAML US HY Const Idx 1.22% 2.56% 7.40% 11. 50 % -2.27% 5.10% Active Performance +0.85% +0.45% +0.09% +1.52% +0.65% +1.16%

Select High Yield 2.01% 3.06% 7.86% 13.39% -2.06% 6.19% ICE BofAML US HY Const Idx 1.22% 2.56% 7.40% 11. 50 % -2.27% 5.10% Active Performance +0.78% +0.49% +0.46% +1.89% +0.21% +1.10 %

Quality High Yield 2.12% 2.97% 7.20% 12.72% -1.34% 6.27% ICE BofAML BB-B US HY Constr 1.68% 2.82% 7.34% 12.21% -2.04% 5.41% Active Performance +0.45% - 0.15% -0.14% +0.51% +0.71% +0.86%

Short Duration High Yield 1.37% 1.76% 5.22% 8.54% 0.53% 4.86% ICE BAM 1-5 Y BB-B US Cs Py HY 1.20% 1.88% 5.49% 8.77% 0.67% 4.94% Active Performance +0.17% - 0.12% -0.27% -0.22% - 0.15% -0.08%

Past Performance is not indicative of future performance. The performance of the Broad High Yield Composite is hypothetical. The assets within the FSI Select High Yield Composite and the FSI Quality High Yield Composite have been combined to create the FSI Broad High Yield Composite. Composite returns do not reflect the deduction of investment advisory fees. A client’s return will be reduced by the investment fees. If a client placed $100,000 under management and a hypothetical gross return of 7% were achieved, the investment assets before fees would have grown to $196,715 in 10 years. However, if an advisory fee of 0.4% were charged, investment assets would have grown to $188,987, or an annual compounded rate of 6.6%. Note: due to rounding percentages may not precisely reflect the absolute figures.

For the overall High Yield market, accounting for the relative Summary: weights of industry sectors, the strongest performers in The HUC0 Index began, and ended Q3’19, as follows: Q3’19 were Telecommunications, Cable TV & Real Estate. The weakest performing sectors for the overall market were As of June 30, 2019: Energy, Metals/ Mining and Publishing. Yield-to-worst of 6.06%, spread-to-worst of +421 bps, duration-to- worst of 3.4, average price of 98.91 For the quarter, the CCC-rated tranche of the Index sharply underperformed the single-B and BB tranches: -2.38%, As of September, 30, 2019: +1.11% and +2.05%, respectively. The majority of weakness Yield-to-worst of 5.87%, spread-to-worst of +420 bps, in CCCs was concentrated in August when U.S. stocks were duration- to- worst of 3.2, average price of 99.16 at quarter lows. However, unlike stocks, CCC’s failed to rally back. Among the CCC-rated credits, the offshore drilling sector was among the worst performing industries; we have no exposure to the sector in any of our portfolios. The CCC- sector currently accounts for 11.9% of the broad High Yield index; more on that, later.

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Portfolio Positioning The industry sectors producing the biggest impacts within our In general, our largest sector overweight’s at quarter end were High Yield Composites are often very different than the overall Energy: E&P and Healthcare: Pharmaceuticals. However, market, due to our individual credit overweight’s and we were about market weight the overall Energy and cumulative bond picking results. For our Broad High Yield Healthcare sectors due to offsetting underweights, elsewhere. composite, the industry sectors making the strongest Our constant, and largest sector underweight remains contributions to portfolio performance were Energy, Basic Financials. We are also less than half weight Telecom: Industry, and Capital Goods. Energy performance was the Wireline, but only modestly underweight the overall Telecom result of superior security selection in E&P, and a combination sector. of solid security selection and a meaningful underweight in All of our High Yield Composites outperformed their Energy Services. Basic Industry outperformance was primarily benchmark indexes during 3Q’19. Broad High Yield, Select due to strong security selection in Metals/Mining and High Yield and Quality High Yield have also outperformed Building Materials; in particular, having no exposure to two YTD’19 and Since Inception. We expect all three of these Core worsening Coal Mining credits. Capital Goods outperformance Composites will remain in the top-decile of their respective was concentrated in Aerospace/Defense (e.g. see: eVestment peer groups. TransDigm in “Positive Contributors”). Short Duration High Yield has modestly lagged its Conversely, the sectors making the weakest contribution to benchmark index Since Inception, however we are satisfied with performance included Consumer Goods, Financials (due to performance given the strategy’s emphasis on relative safety our 4.9% underweight relative to the index) and Real Estate and low volatility. Additionally, we expect Short Duration High (underweight REITS). Consumer Goods underperformance was Yield to retain its rank in the top-third of its eVestment peer largely from Food: Wholesale (e.g. see: Hearthside in group. “Negative Contributors”). As Co-Heads of the First State Investments High Yield Group, we Our team became relatively active in the portfolios during the want to take this opportunity to thank all of our Team partners second half of the quarter. A dozen new credits joined our for driving our Group’s performance, with unusual diligence, portfolios via the new issue market, from late-July to mid- cheerfulness and COMPLETE commitment to our investment September; more than typical for our investment process. In process. Ours is truly a Team effort, and we’ve never worked July we were timely net sellers of relative credit risk; a function with as talented and cohesive a Team of investment of simply letting our investment process work. professionals.

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Broad High Yield

Characteristics Broad Index* Yield to Worst 5.58% 5.87% Spread to Worst 399 420 Duration to Worst 3.42 3.24 # of Issuers 135 AUM 142 Avg. Rating B1/B+ * Index as of quarter end rebalance Sector weightings: Portfolio, Benchmark

Automotive Basic Industry Capital Goods Consumer Goods Energy Financial Healthcare Leisure Media Real Estate Retail Services Technology & Electronics Telecommunications Transportation Utility

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%

Portfolio Index

Breakdown by Rating Breakdown by Country Portfolio Risk Contribution % BBB- 2.5 United States 91.5 BB+ 4.1 Canada 3.1 BB 22.3 United Kingdom 1.5 BB- 20.6 Australia 1.1 B+ 18.2 Greece 1.0 B 14.2 France 0.9 B- 11.7 Italy 0.7 CCC+ 2.1 Ireland 0.2 CCC 2.0 CCC- 0.0 Other* 1.1 * CC, C, D & NR

Top 10 Issuers Top 3/Bottom 3 Contribution to Excess Return

Portfolio 40 Tenet Healthcare 2.5 Bausch Health 2.3 30 Sprint 2.1 20 Charter Communications 1.8

US Cellular 1.6 10 Inmarsat 1.6 Geo Group 1.5 0 Altice 1.5 -10 Vista Outdoors 1.5 Basic Capital Real Consumer Energy Industry Goods Estate Financials Goods Asurion 1.5

* The Broad High Yield strategy is a hypothetical portfolio. The assets of the Select High Yield strategy and the Quality High Yield strategy have been combined to create the characteristics of the Broad High Yield strategy.

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Issuer

Positive Contributors (top three): Negative Contributors (bottom three): Transdigm (TDG): During the quarter TDG reported strong Hearthside (HEFOSO): Hearthside underperformed after fiscal 3Q19 results while management raised the outlook for reporting a disappointing second quarter result. While fiscal 4Q19. While TDG’s legacy business continued to perform management continues to extract synergies from the recently well, management noted that its latest acquisition Esterline acquired Greencore assets, the legacy business has declined exceeded expectations for the first full quarter of ownership. due to SKU churn and timing of new business wins. Further, These results along with the successful divestiture of Esterline’s the Company continues to struggle with the ramp of its non-aerospace business (raising ~$1.0bn which was largely newly constructed European bar facility on the lack of skilled returned to shareholders via a special dividend) led to the labor availability. Given the amount of secured debt in the outperformance of the TDG structure. capital structure, we saw the potential for further meaningful Sprint (S): Sprint outperformed during the third quarter after downside in the bonds and consequently exited the position a DoJ approval of the merger with T-Mobile. The DoJ approved for the time being. We remain constructive on the overall co- the deal under conditions that Sprint divest their prepaid packing business and expect to reevaluate an entry point at businesses and low-band spectrum, along with other remedies, lower levels. to DISH in order to facilitate the creation of a fourth national Chesapeake Energy (CHK): Chesapeake underperformed wireless competitor. A combination with T-Mobile would during the third quarter after reporting disappointing results, result in a larger, more competitive wireless player with better notably putting forth comments that implied at current strip positioning to build out a 5G network than standalone Sprint, prices the company would likely continue to be free cash despite creating another competitor in DISH. Bonds rallied on flow negative in 2020. Further, the collapse of the natural gas the likelihood that the deal will go through with both federal futures curve dragged on the cash flow from the company’s agencies on board, despite a lawsuit from a group of State AGs legacy natural gas assets, creating further concern regarding trying to block the deal. the company’s solvency in the medium term. Albertsons (ACI): The outperformance of ACI guaranteed Antero Midstream (AM): Antero Midstream underperformed notes during the quarter was led by the company reporting during the third quarter as credit concerns at the company’s strong quarterly results that beat most estimates. On the back E&P sponsor Antero Resources dragged on sentiment around of these strong results ACI also tapped the capital markets the midstream entity. At current natural gas prices, Antero to partially repay its secured term loan debt with new senior Resources looks set to be forced to cut capex in 2020 with guaranteed notes due 2028. As the credit story continues to investors increasingly concerned by the company’s higher improve, management revisited the possibility of an IPO filing cost structure and NGL focus amidst a collapse in the global in the near term, giving an extra boost to the structure. natural gas and NGL markets. Antero Midstream generates a large portion of its earnings from water facilities used in Antero Resources’ drilling program, creating concern that a capex cut by the sponsor could lead to a meaningful decline in Antero Midstream’s profits.

Note: Securities discussed are the largest positive and negative contributors for the specific High Yield strategy.

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Select High Yield

Characteristics Select Index* Yield to Worst 5.89% 5.87% Spread to Worst 427 420 Duration to Worst 3.42 3.24 # of Issuers 116 AUM 64 Avg. Rating B1/B+ *Index as of quarter end rebalance Sector weightings: Portfolio, Benchmark

Automotive Basic Industry Capital Goods Consumer Goods Energy Financial Healthcare Leisure Media Real Estate Retail Services Technology & Electronics Telecommunications Transportation Utility

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%

Portfolio Index

Breakdown by Rating Breakdown by Country Portfolio Risk Contribution % BBB- 2.1 United States 91.5 BB+ 2.9 Canada 3.2 BB 20.3 United Kingdom 1.4 BB- 19.4 Australia 1.1 B+ 15.6 Greece 1.0 B 13.1 France 0.7 B- 13.9 Italy 0.7 CCC+ 4.7 Ireland 0.3 CCC 4.4 CCC- 0.0 Other* 0.8 * CC, C, D & NR

Top 10 Issuers Top 3/Bottom 3 Contribution to Excess Return

Market Value % 30 Tenet Healthcare 3.0 20 Bausch Health 2.4 10 Sprint 2.4 Iridium Communications 2.2 0

Assured Partners 2.0 -10 Century Link 1.8 -20 Vista Outdoor 1.8 US Cellular 1.8 -30 Basic Capital Real Consumer Energy Industry Goods Estate Financials Goods Geo Group 1.7 Asurion 1.6

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Issuer

Positive Contributors (top three): Negative Contributors (bottom three): Sprint (S): Sprint outperformed during the third quarter after Hearthside (HEFOSO): Hearthside underperformed after a DoJ approval of the merger with T-Mobile. The DoJ approved reporting a disappointing second quarter result. While the deal under conditions that Sprint divest their prepaid management continues to extract synergies from the recently businesses and low-band spectrum, along with other remedies, acquired Greencore assets, the legacy business has declined to DISH in order to facilitate the creation of a fourth national due to SKU churn and timing of new business wins. Further, wireless competitor. A combination with T-Mobile would the Company continues to struggle with the ramp of its result in a larger, more competitive wireless player with better newly constructed European bar facility on the lack of skilled positioning to build out a 5G network than standalone Sprint, labor availability. Given the amount of secured debt in the despite creating another competitor in DISH. Bonds rallied on capital structure, we saw the potential for further meaningful the likelihood that the deal will go through with both federal downside in the bonds and consequently exited the position agencies on board, despite a lawsuit from a group of State AGs for the time being. We remain constructive on the overall co- trying to block the deal. packing business and expect to reevaluate an entry point at Tenet Healthcare (THC): The THC structure outperformance lower levels. in 3Q19 was led by several positive factors including strong Chesapeake Energy (CHK): Chesapeake underperformed patient volume and pricing growth in 2Q19 following several during the third quarter after reporting disappointing results, quarters of tepid growth and extension of front-end maturities notably putting forth comments that implied at current strip (refinanced its 1L 2020/21 maturities through the newly prices the company would likely continue to be free cash issued 1L notes due 2024/26/27). In addition, the company flow negative in 2020. Further, the collapse of the natural gas announced its decision to end the sale process for Conifer and futures curve dragged on the cash flow from the company’s instead spin off the business with an “appropriate amount of legacy natural gas assets, creating further concern regarding debt” by mid-2021. While viewed as a somewhat disappointing the company’s solvency in the medium term. outcome for Conifer, the decision now allows THC to focus on Antero Midstream (AM): Antero Midstream underperformed growth (at both businesses) and gives it the opportunity to during the quarter as credit concerns at the company’s E&P rethink the capital structure (and leverage) of the remaining sponsor Antero Resources dragged on sentiment around company in conjunction with the spin. the midstream entity. At current natural gas prices, Antero Albertsons (ACI): The outperformance of ACI guaranteed Resources looks set to be forced to cut capex in 2020 with notes during the quarter was led by the company reporting investors increasingly concerned by the company’s higher strong quarterly results that beat most estimates. On the back cost structure and NGL focus amidst a collapse in the global of these strong results ACI also tapped the capital markets natural gas and NGL markets. Antero Midstream generates a to partially repay its secured term loan debt with new senior large portion of its earnings from water facilities used in Antero guaranteed notes due 2028. As the credit story continues to Resources’ drilling program, creating concern that a capex cut improve, management revisited the possibility of an IPO filing in by the sponsor could lead to a meaningful decline in Antero the near term, giving an extra boost to the structure. Midstream’s profits.

Note: Securities discussed are the largest positive and negative contributors for the specific High Yield strategy.

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Quality High Yield

Characteristics Quality Index* Yield to Worst 5.33% 5.00% Spread to Worst 377 332 Duration to Worst 3.42 3.27 # of Issuers 131 AUM 77 Avg. Rating B1/BB- * Index as of quarter end rebalance Sector weightings: Portfolio, Benchmark Automotive Basic Industry Capital Goods Consumer Goods Energy Financial Healthcare Leisure Media Real Estate Retail Services Technology & Electronics Telecommunications Transportation Utility

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%

Portfolio Index

Breakdown by Rating Breakdown by Country Portfolio Risk Contribution % BBB- 2.9 United States 91.4 BB+ 5.1 Canada 3.0 BB 24.0 United Kingdom 1.6 BB- 21.7 Australia 1.1 B+ 20.4 Greece 1.0 B 15.1 France 1.0 B- 9.9 Italy 0.8 CCC+ 0.0 Ireland 0.1 CCC 0.0 Other* 1.3 * NR & NA

Top 10 Issuers Top 3/Bottom 3 Contribution to Excess Return

Market Value % 25 Charter Communications 2.3 15 Bausch Health 2.3

Tenet Healthcare 2.1 5 Sprint 2.0 -5 Altice 1.7 Berry Plastics 1.7 -15 Match Group 1.6 Inmarsat 1.6 -25 Basic Capital Telecom- Real Industry Goods Energy munications Estate Financials US Cellular 1.5 Stars Group 1.5

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Issuer

Positive Contributors (top three): Negative Contributors (bottom three): Transdigm (TDG): During the quarter TDG reported strong Antero Midstream (AM): Antero Midstream underperformed fiscal 3Q19 results while management raised the outlook for during the quarter as credit concerns at the company’s E&P fiscal 4Q19. While TDG’s legacy business continued to perform sponsor Antero Resources dragged on sentiment around well, management noted that its latest acquisition Esterline the midstream entity. At current natural gas prices, Antero exceeded expectations for the first full quarter of ownership. Resources looks set to be forced to cut capex in 2020 with These results along with the successful divestiture of Esterline’s investors increasingly concerned by the company’s higher non-aerospace business (raising ~$1.0bn which was largely cost structure and NGL focus amidst a collapse in the global returned to shareholders via a special dividend) led to the natural gas and NGL markets. Antero Midstream generates a outperformance of the TDG structure. large portion of its earnings from water facilities used in Antero Sprint (S): Sprint outperformed during the third quarter after Resources’ drilling program, creating concern that a capex cut a DoJ approval of the merger with T-Mobile. The DoJ approved by the sponsor could lead to a meaningful decline in Antero the deal under conditions that Sprint divest their prepaid Midstream’s profits. businesses and low-band spectrum, along with other remedies, Chesapeake Energy (CHK): Chesapeake underperformed to DISH in order to facilitate the creation of a fourth national during the third quarter after reporting disappointing results, wireless competitor. A combination with T-Mobile would notably putting forth comments that implied at current strip result in a larger, more competitive wireless player with better prices the company would likely continue to be free cash positioning to build out a 5G network than standalone Sprint, flow negative in 2020. Further, the collapse of the natural gas despite creating another competitor in DISH. Bonds rallied on futures curve dragged on the cash flow from the company’s the likelihood that the deal will go through with both federal legacy natural gas assets, creating further concern regarding agencies on board, despite a lawsuit from a group of State AGs the company’s solvency in the medium term. trying to block the deal. Denbury Resources (DNR): Denbury underperformed during Energizer (ENR): Energizer outperformed due to the third quarter as crude oil fell amidst demand uncertainty management’s reiteration of their FY19 guidance and its entering 2020, creating concern around the company’s ability disclosure that performance at the recently acquired Dayton to meaningfully deliver within cash flow and raising investor autocare facility had stabilized. The bonds also benefitted from speculation that the company may need to continue to the market’s flight to less cyclical companies amidst weakening perform further debt exchanges or issue more secured debt global economic data and the bond’s attractive relative value ahead of the company’s 2021 maturity wall. at the beginning of the quarter.

Note: Securities discussed are the largest positive and negative contributors for the specific High Yield strategy.

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Short Duration High Yield

Characteristics Short Duration Index* Yield to Worst 4.37% 4.77% Spread to Worst 277 305 Duration to Worst 1.7 1.88 # of Issuers 108 AUM 55 Avg. Rating B1/BB- *Index as of quarter end rebalance Sector weightings: Portfolio, Benchmark

Automotive Basic Industry Capital Goods Consumer Goods Energy Financial Healthcare Leisure Media Real Estate Retail Services Technology & Electronics Telecommunications Transportation Utility

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%

Portfolio Index Breakdown by Rating Breakdown by Country Portfolio Risk Contribution % BBB- 2.9 United States 94.7 BB+ 5.5 Canada 3.5 BB 24.2 United Kingdom 0.6 BB- 25.0 France 0.6 B+ 16.8 Ireland 0.5 B 14.4 Brazil 0.1 B- 8.3 CCC+ 0.0 Australia 0.1 CCC 0.0 Other* 2.1

*NR & NA

Top 10 Issuers Top 3/Bottom 3 Contribution to Excess Return

Market Value % 25 Bausch Health 2.5 Icahn Enterprieses 2.0 15 Sprint 2.0 5 Reynolds Group 2.0 Dell 1.9 -5 Charter Communications 1.9 Level III 1.7 -15 Tenet Healthcare 1.7 -25 Capital Basic Telecom- Avantor 1.6 Goods Industry Healthcare Financials Utility munications Encompass Health 1.6

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Issuer

Positive Contributors (top three): Negative Contributors (bottom three): Tenet Healthcare (THC): The THC structure outperformance Chesapeake Energy (CHK): Chesapeake underperformed in 3Q19 was led by several positive factors including strong during the third quarter after reporting disappointing results, patient volume and pricing growth in 2Q19 following several notably putting forth comments that implied at current strip quarters of tepid growth and extension of front-end maturities prices the company would likely continue to be free cash flow (refinanced its 1L 2020/21 maturities through the newly negative in 2020. Further, the collapse of the natural gas futures issued 1L notes due 2024/26/27). In addition, the company curve dragged on the cash flow from the company’s legacy announced its decision to end the sale process for Conifer and natural gas assets, creating further concern regarding the instead spin off the business with an “appropriate amount of company’s solvency in the medium term. debt” by mid-2021. While viewed as a somewhat disappointing Denbury Resources (DNR): Denbury underperformed during outcome for Conifer, the decision now allows THC to focus on the third quarter as crude fell amidst demand uncertainty growth (at both businesses) and gives it the opportunity to entering 2020, creating concern around the company’s ability rethink the capital structure (and leverage) of the remaining to meaningfully deliver within cash flow and raising investor company in conjunction with the spin. speculation that the company may need to continue to perform Sprint (S): Sprint outperformed during the third quarter after further debt exchanges or issue more secured debt ahead of the a DoJ approval of the merger with T-Mobile. The DoJ approved company’s 2021 maturity wall. the deal under conditions that Sprint divest their prepaid Oasis Petroleum (OAS): Oasis underperformed during the businesses and low-band spectrum, along with other remedies, third quarter as the company reported weak numbers, lowered to DISH in order to facilitate the creation of a fourth national FY19 production guidance amidst processing constraints wireless competitor. A combination with T-Mobile would and increased capex guidance due to a less deflationary than result in a larger, more competitive wireless player with better expected services market. The higher capex guidance increased positioning to build out a 5G network than standalone Sprint, investor fears that management would opt to focus on growth in despite creating another competitor in DISH. Bonds rallied on the company’s less developed Permian acreage, raising concern the likelihood that the deal will go through with both federal that management is not prioritizing free cash flow and also agencies on board, despite a lawsuit from a group of State AGs confusing investors as the capex guidance increase looked to be trying to block the deal. driven by poor internal cost controls. Commercial Metals (CMC): Commercial Metals outperformed due to its improving credit profile as it ramps its Durant micro mill and integrates the Gerdau rebar assets. The bonds also benefitted from the market’s flight to quality during the quarter as Commercial Metals offered attractive value relative to Steel Dynamics, a high quality steel peer, and integrated high yield steel names like AK Steel and U.S. Steel.

Note: Securities discussed are the largest positive and negative contributors for the specific High Yield strategy.

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Co-Portfolio Managers: High Yield

Jason Epstein Matt Philo, CFA Senior Portfolio Manager, Senior Portfolio Manager, Co - Head of High Yield Co - Head of High Yield

Jason joined First State Investments in September 2016. He has Matt joined First State Investments in May 2016. He has 30 18 years of industry experience. years of industry experience. He was a Managing Director with Oak Hill Advisors where he was He was Executive Managing Director & Head of High Yield at responsible for managing a team of analysts covering a broad MacKay Shields LLC. range of sectors. He managed the Mainstay High Yield Corporate Bond Fund Prior to Oak Hill, Jason was an analyst within investment banking (MYHIX) from December 2000 through May 2014. at Credit Suisse First Boston where he was a member of both the Matt has an MBA in finance from New York University and a BA Financial Sponsors and Technology groups. from University at Albany SUNY. Matt is a CFA Charterholder. Jason has a BS in Economics from The Wharton School, University of Pennsylvania.

12 Quarterly Update High Yield

Important Information: This material is solely for the attention of institutional, professional, qualified or sophisticated investors and distributors who qualify as qualified purchasers under the Investment Company Act of 1940, as accredited investors under Rule 501 of SEC Regulation D under the US Securities Act of 1933, and as qualified eligible persons as defined under CFTC Regulation 4.7. It is not to be distributed to the general public, private customers or retail investors in any jurisdiction whatsoever. This presentation is issued by First State Investments (US) LLC (“FSI” or “First State Investments”). The information included within this presentation is furnished on a confidential basis and should not be copied, reproduced or redistributed without the prior written consent of FSI or any of its affiliates. This document is not an offer for sale of funds to US persons (as such term is used in Regulation S promulgated under the 1933 Act). Fund-specific information has been provided to illustrate First State Investments’ expertise in the strategy. Differences between fund-specific constraints or fees and those of a similarly managed mandate would affect performance results. This material is provided for information purposes only and does not constitute a recommendation, a solicitation, an offer, an advice or an invitation to purchase or sell any fund and should in no case be interpreted as such. Any investment with First State Investments should form part of a diversified portfolio and be considered a long term investment. Prospective investors should be aware that returns over the short term may not match potential long term returns. Investors should always seek independent financial advice before making any investment decision. The value of an investment and any income from it may go down as well as up. An investor may not get back the amount invested and past performance information is not a guide to future performance, which is not guaranteed. Certain statements, estimates, and projections in this document may be forward-looking statements. These forward-looking statements are based upon First State Investments’ current assumptions and beliefs, in light of currently available information, but involve known and unknown risks and uncertainties. Actual actions or results may differ materially from those discussed. Actual returns can be affected by many factors, including, but not limited to, inaccurate assumptions, known or unknown risks and uncertainties and other factors that may cause actual results, performance, or achievements to be materially different. Readers are cautioned not to place undue reliance on these forward-looking statements. There is no certainty that current conditions will last, and First State Investments undertakes no obligation to publicly update any forward-looking statement. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE PERFORMANCE. Reference to the names of each company mentioned in this communication is merely for explaining the investment strategy, and should not be construed as investment advice or investment recommendation of those companies. Companies mentioned herein may or may not form part of the holdings of FSI. The comparative benchmarks or indices referred to herein are for illustrative and comparison purposes only, may not be available for direct investment, are unmanaged, assume reinvestment of income, and have limitations when used for comparison or other purposes because they may have volatility, credit, or other material characteristics (such as number and types of securities) that are different from the funds managed by First State Investments. For more information please visit www.firststateinvestments.com. Telephone calls with FSI may be recorded. The First State Investments logo is a trademark of the Commonwealth Bank of Australia or an affiliate thereof and is used by FSI under licence. MAR000516_US_1019

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